Special Focus

Summary and Highlights
Hudson Valley Review - Fourth Quarter 2003

Jobs continued to expand in the Hudson Valley for the fourth quarter,
2003,
and for the full year. This employment growth was apparent in both
measures of employment, by resident and by employer. While national
job
growth remains sluggish, the region has experienced nine consecutive
quarters
of employment growth, in terms of jobs held by residents.

Manufacturing employment is continuing to decline, while the region
shows
considerable strength in services. Gains were observed in health,
education, business and professional services, as well as leisure and
hospitality in the fourth quarter. For the fourth quarter and for the
full year
of 2003, there were declines in the information services sector.

Unemployment rate for the region was 4%, much below New York City, New
York
State, and the U.S.

Home sales and sales tax revenue both continued to increase.

Recovery at Stewart Airport is shown in both passenger traffic and
cargo.

Tourism is declining, according to selected indicators at National
Park Service
locations in the region, including Roosevelt/Vanderbilt and
Martin Van Buren sites. New visitor facilities are opening in the
region,
including new hotels and visitor centers, with expanded marketing
campaigns
also contributing to a favorable prospect.

Special Focus

Favorable trends in the region are underscored by migration data from
the
Internal Revenue Service. The region shows a net in-migration with
respect
to the wider New York/New Jersey Metropolitan area, as well as high
tech
states and the balance of New York State.

Location quotients, a standard measure of employment intensity by
sector, shows
that Hudson Valley counties have a larger share of employment in high
tech, biotech, and finance sectors than the national average.

Prospects

Even record low interest rates and three consecutive tax cuts have left
the
national economy with slow job growth. The job creation in the Hudson
Valley stands as an exception to the national pattern. The Hudson
Valley has
a relative employment concentration in sectors which are showing a
positive trade balance in the U.S. Balance of Payments, such as
semiconductors
and services. In addition, New York State is the fifth largest
exporting
state in the U.S. Still, outsourcing, growing trade deficits and
government
budget deficits, as well as stock market gyrations, will place a drag
on
the regional economy, along with the U.S.

Within this national context, prospects for continued job growth in the
region
remain very modest, at an annual rate of 1%.

National Review - Fourth Quarter 2003

The Gross Domestic Product increased by 4.1% in the fourth quarter of
2003, down
from 8.2% in the third quarter. The GDP has been expanding
consecutively for nine quarters, since third quarter, 2001. Personal
consumption
expenditures grew more slowly, at 2.7%, and production of durables
goods actually declined by .1%, a sharp turnaround from the 28%
expansion of
consumer durables in the third quarter.

Gross private domestic investment continued to increase strongly, at a
rate of
15.8%, up from 14.8% in the third quarter. This increase in investment
is the strongest since second quarter, 2000, before the 2001 recession.
Investment in equipment and software increased by 15.1% in the fourth
quarter,
down slightly from the increase of 17.6% in the third quarter. This
expansion
of IT investment and software in the second half of 2003 was the most
rapid since the first quarter of 2000. Residential investment
increased by 8.6%
in the fourth quarter, down from 21.9% in the third.

Purchases of durable goods and investment in equipment and software
were
exceptionally strong in the third quarter, at rates that were not
sustained in
the fourth quarter. Nonetheless, these third quarter boosts, from low
interest
rates and tax cuts, pushed up GDP for the full year, 2003.

Exports grew faster than imports in the fourth quarter, continuing that
pattern
from the third quarter, turning around the declining exports in the
first half of 2003. The improved export performance in the second half
of the
year may have been assisted by the lower value of the dollar recently.

The implicit price deflator for GDP grew by 1.2% in the fourth quarter,
down
from 1.6% in the third.

Productivity in the nonfarm business sector grew by 5.4% in the fourth
quarter
year over year, up from 5.3% in the third quarter. This is the most
rapid gain since third quarter, 2002. Productivity in the
manufacturing sector
also grew at a more rapid rate of 5.8% in the fourth quarter, compared
with 5.3% in the third quarter.

Full Year, 2003

The GDP grew by 3.1% in 2003, up from 2.2% in 2002 and .5% in 2001.
Consumption
grew by 3.1% in 2003, down slightly from 3.4% in 2002 and up from 2.5%
in 2001. Reversing declines in 2001 and 2002, gross private domestic
investment
grew by 4.3% in 2003, and equipment and software increased by 5.5%.

For the full year, exports grew by 2.1% in 2003, reversing declines in
2001 and
2002, but still increased more slowly than imports.

For the full year of 2003, the GDP price deflator increased by 1.6%, up
slightly
from 1.5% in 2002, but much slower than the 2.4% gain in 2001. While
the Consumer Price Index was in the range of 3% for services, the CPI
for goods,
excluding food and energy, was declining by nearly 3%. In the last
quarter of 2003, commodity spot prices were increasing by over 10%,
year-over-year.

From Cleveland Federal Reserve Bank, January, 2004.

Full year productivity in the nonfarm business sector grew by 4.4%,
down from
5% in 2002. Manufacturing productivity also grew more slowly for the
full year 2003, down to 5.1% in 2003 from 7.2% in 2002. Unit labor
costs rose
by .4% in 2003, reversing the decline by 3% in 2002.

Employment costs rose by only .7% in the quarter ending in December,
2003.
Wages and salaries increased only by .5%, in contrast to the benefit
costs
rise of 1.2%. For the full year, total compensation of civilian
workers rose
by 3.8%. Wages and salaries only rose by 2.9%, while benefit costs
increased by 6.3%. A similar pattern held for private industry and for
state
and local government employees, except for the slower wage growth of
the
state and local government workers. The rate of increase in benefit
costs is
the highest since the early 1990s.

From the Federal Reserve Bank of Cleveland, December, 2003.

While GDP growth from the 2001 recession has been faster than the
recovery
from the average post-war recession, the growth of employment has been
slower. Payroll employment was still shrinking in 2003, by an average
monthly decrease of 4 thousand jobs for the full year. Capacity
utilization
remained below 75% for most of the last half of 2003, even in high tech
sectors.

From Cleveland Federal Reserve Bank, January, 2004.

The U.S. trade deficit continued to grow in 2003. The annual deficit
for the
full year of 2003 reached a record $489.9 billion, 4.5% of GDP. This
share of GDP has increased sharply in the last few years, from 1.9% in
1990
and 4% in 2002.

While there was a trade deficit in capital goods in 2003, the balance
in
semiconductors has been positive in recent years.

Semiconductors (mil. $)

2000

2001

2002

Exports

60,077

45,066

42,235

Imports

48,354

30,422

26,015

Balance

11,723

14,644

16,220

Although full year results from 2003 are not yet available, the
quarterly and
monthly data for semiconductor trade indicates that this trend has
continued.

Semiconductors (mil $)

1st quarter 2003

2nd quarter 2003

3rd quarter 2003

December 2003

January 2004

Exports

10,705

11,318

11,720

4,287

4,024

Imports

6,122

6,152

6,202

2,116

2,155

Balance

4,583

5,166

5,518

2,171

1,869

Perhaps for this reason, New York State is the fifth largest exporting
state in the
U.S., with Texas and California in first and second place, as of
January, 2004.

From Cleveland Federal Reserve Bank, January, 2004.

Because of these persistent trade deficits, the U.S. is now more likely
to run a
deficit on income on investments overseas, as opposed to payments to
foreigners for their returns on investments in the U.S.

Income (mil $)

2000

2001

2002

2003 1st quarter

2003 2nd quarter

2003 3rd quarter

Receipts

346,861

277,362

255,542

62,901

64,310

67,344

Payments

327,256

266,673

259,512

62,710

62,580

64,749

Balance

19,605

10,689

-3,970

191

1,730

2,595

Based on data for three quarters in 2003, the deficit on income for the
full
year of 2002 is not likely to be repeated in 2003.

Regional Review - Fourth Quarter 2003

Employment and Earnings

Place of Residence

Jobs held by residents increased by 1.7% in the fourth quarter, 2003,
from one year
ago. There were gains in all counties except Greene, while the
fastest increase was in Rockland, Orange, Dutchess, and Putnam
counties. Employment
in New York City and New York State continued to decline.

For the region as a whole, labor force grew faster than the number of
jobs, so the
unemployment rate increased slightly to 4%. In two counties,
Dutchess and Westchester, jobs grew faster than labor force, so the
unemployment
rate declined, remaining below 4% in both counties. In New York City,
the unemployment rate declined for the opposite reason, the labor force
declined
faster than the number of jobs. The unemployment rate in New York
City was nearly 8% and in New York State still over 6%.

The region has had nine quarters of employment expansion, although the
pace has
slowed throughout 2003. Because the job growth for the nation has been
much slower, the unemployment rate in the region remains far below the
U.S. average.

Place of Work

Jobs located in the region also increased by 1.5% from one year ago.
While
manufacturing declined by over 3%, services gained by nearly 2%,
particularly in health and education services, and hospitality. There
were mixed
results elsewhere in the services sector. The information sector
decreased by almost 6%, but the financial services sector gained by
nearly 2%.
The strongest total gains were in Putnam, Orange, and Rockland
counties, while there was no change in Columbia, and small declines in
Greene
and Ulster. The only county with gains in manufacturing was Dutchess,
where there was a gain of 100 jobs.

Home Sales

Home sales expanded strongly in the region in the fourth quarter,
stoked by
continuing low interest rates and northward migration. Sales expanded
by
26.6% for the region as a whole, with mixed pattern by county.

There was a mixed pattern of building permits, an indicator of future
construction. There were large increases in Columbia, Greene, and
Dutchess, and
large declines in Ulster and Westchester, with an overall slight
decline of 1.3%
for the region in single family homes. There was a large gain for the
region in all residential construction, with a gain of 27% over one
year ago.

Regional Airports

Both passenger and cargo traffic increased at Stewart Airport from
year-ago levels,
while Westchester declined by 10%.

Tourism

The number of visitors taking tours at the Roosevelt-Vanderbilt sites
in Dutchess
county decreased slightly from year-ago figures, by 3.23%. The
number of visitors to the grounds also declined, possibly due to the
unusually
harsh winter weather. Total visitation also declined to the Van Buren
site.

Consumer Price Index

In the fourth quarter, 2003, there was a significant divergence between
regional
and national inflation rates. The New York/New Jersey Metropolitan
area had 3% consumer price inflation, compared with 2% or less for all
U.S. cities.
This difference is unusual in the context of high unemployment
rates in New York City, and may reflect higher costs of operations.
There was a
similar pattern in 2002, but New York area had lower rates of inflation
in 2000 and 2001.

Retail Sales

For the fourth quarter, sales tax revenue increased by nearly 12%.
This boost
in year-over-year earnings was partly due to the increase in New York
State sales tax by .25% in June, 2003.

Bankruptcies

Bankruptcy filings for the Southern District increased by 6.3% from one
year ago,
faster than for other regions and for all of New York State. The
Southern District, which includes much of the Hudson Valley as well as
New York
City, had declines in business filings but increases in non-business
filings, which are the largest share of the total. The Northern
District, which
includes Columbia, Greene, and Ulster, had a very slight increase from
one year ago, and had large declines in non-business filings.

Annual, 2003

Employment

Place of Residence

Jobs held by residents expanded by 1.9% for the full year 2003, faster
than New
York State and the U.S., but slower than 2002. Jobs expanded in all
counties except Sullivan. The fastest growth was in Columbia,
Dutchess, and
Putnam. For the region, jobs grew faster than the labor force, so the
unemployment rate declined.

Place of Work

Total jobs located in the region expanded more slowly, with a mere .6%
growth
over one year ago, while manufacturing continued to decline. All
service
sector jobs increased except for information, with professional and
business
services growing by more than 2%. Jobs expanded in all counties except
for
Sullivan. All counties have greater employment levels in 2003 than
during the
1990s except for Dutchess.

Home Sales

There was a decrease of 1.9% in the number of homes sold in the region
in 2003
from year ago levels, offsetting somewhat the increase of 16.6% from
2001 to 2002. There was a mixed pattern across the counties.

The number of building permits also decreased for single family homes
for the
region by 12% from year ago levels, in spite of large increases in
Columbia, Dutchess, and Greene. The regional average for all
residential new
construction for the region increased by 18%.

Tourism

Visitors taking tours to the Roosevelt-Vanderbilt sites decreased for
the full
year of 2003 by 13%. For the Martin Van Buren site the decrease was
smaller, 9%.

Bankruptcies

Bankruptcies increased for the Northern and Southern Districts by over
6% in
2003, more than the average for New York State. Non-business filings
are
the largest share of the total in both southern and northern districts.
Non-business filings increased in the southern district, but decreased
in the
northern district, from year-ago levels.

Sales Tax

Sales tax revenue collections increased by over 7% for the region, with
increases
in all counties. During the year of 2003, there were rate increases
in New York State, and in some counties, as well.

Regional Airports

Passengers embarking from Stewart Airport increased by 4% for the year.
The
number enplaned in 2003, 188,791, was still less than half of the peak
year of 418,828 in 1997.

Special Focus

Migration

Data available from the Internal Revenue Service provide an annual
measure of migration.

For the period 1996 to 2002, the number of tax returns for filers who
moved to
the Hudson Valley from the New York/New Jersey metropolitan region
exceeded the number of filers who moved from the region to the
metropolitan
area. For the entire period,
119,842 filers moved into the region, while only 721 moved out of the
region
to the larger metropolitan area. The southern most portion of the
region,
particularly Westchester, Orange, and Rockland, experienced larger
numbers
of in-migrants.

There was considerable migration within the region, as well. A total
of 76,091 filers
moved within the region during the period 1996-2002, with a
general trend of increasing migration over the period.

From high tech states there was a net in-migration into the Hudson
Valley, including
California, Massachusetts, Texas, and North Carolina. There was
also a net in-migration from the rest of New York State into the Hudson
Valley counties.

Location Quotients

A technique for measuring the concentration of types of employment in a
region
is to compare the relative intensity of that sector as a share of total
employment, to the share of that same sector of total employment in a
comparison
region.

Using these measures, the relative intensity of high tech employment in
the
Hudson Valley compares favorably with the U.S. as a whole for computer
manufacturing, as well as internet service providers, wired
telecommunications
carriers, and chemical engineering. In some cases, the Hudson Valley
compared favorably with other high tech regions as well.

The location quotient for biotechnology also shows the Hudson Valley
has a
higher share of employment in that sector than the U.S. average, using
the
measure by counties. Using comparison metropolitan areas, only Albany
and
Bergen county, New Jersey, have higher than average shares of biotech
employment.

Similarly, by county, the Hudson Valley has a higher share of finance
sector
employment than average for the U.S. By MSA, only Albany has a higher
share than average.

Sources: New York Times, Wall Street Journal, Federal Reserve Bank of
Cleveland,
U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics,
New York State Association of Realtors, New York State Department of
Taxation and
Finance, Stewart Airport, Westchester County Airport, U.S. Department
of Labor, New York State Department of Labor, Internal Revenue Service,
National
Park Service.